Preparing for Global Deflation

By Mark Borkowski

I had the opportunity of interviewing Mike Verge, Managing Director at Ontario Refrigeration and Air Conditioning Contractors Association, regarding his fascinating book and his message rang true for me.

Imagine if you could put on a pair of magic sunglasses and immediately see the future price of products and services, globally. In his stimulating new book, Global Deflation and the Next Great American Decade to Come, Verge shows a unique ability to simplify and explain today’s complex economic challenges. He does this by developing new models and paradigms he calls ‘Deflation Sunglasses’. You put them on and everything becomes clear. You will be able to see prices into the future; what will go up, and what will come down.

Most of us have trouble understanding the current global economic situation. That may be because there is one piece of the equation that is missing from the discussion. That is deflation. Since the time of the Romans, citizens and governments have depended on inflation to get them out of economic jams.

Governments have always spent more money on programs than they have in their coffers. They borrowed the dollars today with the intent of paying it back later with cheaper “future dollars”. This historic phenomenon has created a whole ‘inflation industry’. Business schools, politicians and economists seem to always focus on inflation and don’t even discuss deflation. However, deflation is just as important a part the business cycle, like breathing in and breathing out. Verge suggests that only when you understand this, does the global economic situation begin to finally make sense.

The book begins by showing how the opposing forces of inflation and deflation are at an eternal “tug-of-war”. On the deflation side are ageing demographics, overcapacity of almost all commodities, and global debt levels. On the inflation side we have money printing and government infrastructure spending. And, after 30 years of inflation, it now appears as though the deflationary forces are taking over.

To see this battle, as it is happening, you have to adopt a few new models. Firstly, deflation is global. International governments are trying to devalue their currencies so that they can increase exports. This has the effect of “exporting deflation and importing inflation”.

Secondly, deflation can only be understood on a global basis when the US dollar is used as the global measuring stick. If a country shows a 10% devaluation of its currency, and then has 3% inflation, in reality it is experiencing 7% deflation.

Thirdly, the internet is “the greatest deflator of all time”. By allowing global competition for almost every product and service, the internet can increase the number of competitors to infinity, thereby continually reducing the prices for almost everything.

Verge goes on to explain a counter-intuitive vision of the future where oil prices tend to $20 per barrel, retailers are reduced to ‘showrooms and phones’, banks are formed where nobody pays, and asset taxes replace income taxes. In this new topsy-turvy world, wages begin to slow, home prices begin to drop, except perhaps, in “global gateway cities” and gold takes over as the global currency. At first all of this seems very strange. However, with your new sunglasses it all seems to make sense.

In his book Verge does suggest some disturbing economic scenarios. If you are not prepared for them, they can be quite disruptive. However if you are prepared, they could offer the greatest opportunity of all time. Knowing how to read these “tea leaves of change” is the key to success.

I recommend you put on Verge’s sunglasses now, and enjoy the view. You will begin to profit in the blink of an eye.